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Got Volatility?

Got Volatility?

Markets?

We think that the months before the U.S. election in 2012 will be much like the months between the fall of 2008 and early 2009, when the U.S. market bottomed.

We detect no decisiveness in Europe, which happens to be the epicenter of the current market meltdown.  There is clearly no decisiveness in the U.S., where two opposing world views have faced off: those who believe in wealth redistribution on the left, and those who believe in a balanced budget and pay down of debt on the right.

Clearly, the world’s stock, bond, currency, and commodity markets are in turmoil as a result of this ideological battle and as a result of the failure of Europe to face their problems.
 
The world markets have clearly stated that they want growth, and through growth, balanced budgets.  Unfortunately, growth is not in the economic cards for Europe or the U.S. over the next few months.  Rather, both regions will have stagnation, inflation, fear, turmoil, and two deeply opposed world views will be bandied about in political pronouncements.  It does not matter what political view you have.  If one wishes to survive and prosper, one must be very alert.
 
In the last days the European Central Bank [ECB] has said that they will purchase Portugese, Irish, Spanish and Italian government debt. The amounts were not specified.This is the beginning of European QE.
 
When leaders return from holidays in later August they have said that they expect approval of an expanded European Financial Stability Fund [EFSF] by the end of September to  increase the size of the facilities to 440 billion Euros.
 
Small purchases are reported to have begun on Monday August 9, 2011.
 
Memo to Europe: Act more quickly before the markets call your bluff, and be prepared to spend over  800 billion Euros if you want to have any effect. Banks in Europe must be recapitalized and bad debt must be marked down.
  
 
From Where Will The Solution Come?
 
The stock, commodities, real estate, and currency markets are disappointed and there is nothing on the horizon to allay their disappointment.  We will soon tell you how we suggest that you invest to navigate this very serious time, but in the meantime read on…
 
Both U.S. political parties should pay attention to the following; there will be a depressed U.S. economy when the elections occur in November 2012.
 
The U.S. dollar has been devaluing slowly for years.  An idea they should consider is…devalue the U.S. dollar rapidly, say by 40 or 50 percent.  If one of the political parties would advocate a devaluation of the dollar on a grand scale as a method of coming out of the economic malaise, we think they will win the election of 2012.
 
The dollar has already been declining by about 5 percent per annum.  Whether it continues this slow pace or in a more rapid devaluation option, the effects of this devaluation will be seen on 4 levels.

1. Every American will become poorer in that he or she will not have the buying power to purchase as many goods or services [his or her standard of living will fall].
 
2. Investors who want to maintain their buying power, or who want to become wealthy, will seek alternatives to the dollar such as the ones we have long espoused.  Gold, strong non-U.S. currencies.  If the dollar is devalued in one large increment; food, oil, and other commodities would rise dramatically.  At that time, we would not be surprised to see oil and gold double from their current levels.
 
3. A much lower dollar will help solve many of the U.S. growth problems: corporate profits will rise, exports will increase, employment will increase, and the economic stagnation will improve, but inflation will rise at a rapid rate.
 
4. Because the dollar will no longer be viewed as stable, important global and national interests will replace the U.S. dollar as the world reserve currency. This will lead to a new world reserve currency in the form of a basket: with the U.S. dollar, gold and the Chinese renminbi as joint participants.  We expect the Euro community to have collapsed by the time that this occurs, if the collapse has not yet taken place the Euro and Yen may be included in the basket.  One need only do the arithmetic to see that gold could go much higher if it were included as just 10% of such a basket.

Someday, when we have time, we may write a book about the seeds of the current crisis and how it occurred.  For starters, we can go back forty years from this month to when President Nixon closed the gold window in August 1971.  That event removed all gold backing from the U.S. dollar and sowed the seeds of the current and future U.S. dollar crises.
 
 
How To Invest In The Short-Term
 
1.  Own gold and foreign non U.S. currencies with a future: Chinese renminbi, Swiss franc, Canadian dollar, Brazilian, and possibly the  Singaporean, Australian, and the New Zealand currencies.
 
You may ask why should I own gold?  Gold fell in 2008. This is true. Gold fell in 2008, because investors trusted the U.S. and European currencies.  They believed that these regions represented safe havens.  The countries could be counted on to eventually balance their budgets.  Their bonds were AAA.
  
Since 2008, the fantasy of responsible political management in Europe and the U.S. has been destroyed.  Like all fantasies it could not stand the harsh reality of the fundamental situation.  To put it another way, people thought that the dollar and euro were money.  Today, even the slowest have realized that gold is money and that currencies are only paper backed by the rationality and goodwill of the political process in each individual nation.
 
2. Short European bank stocks.
 
3. Buy the following on dips and when fear of economic collapse increases: gold, oil, and food grains (and companies that support their production).
 
4. China and India are the future economic powerhouses of the world.  Brazil could join them if President Rousseff follows the productive example led by President Lula.  On dips in the markets caused by fear of global economic collapse, buy China, India, and the countries that supply them with raw materials.
 
5. Follow the Guild Basic Needs IndexTM to see what is really happening to the buying power of the dollar.  The Guild Basic Needs IndexTM will be found in these letters and on our website www.guildinvestment.com. Subscribe to our free email newsletter on the web site if you are not already receiving it.



How To Invest Now In The Long-Term
 
1.  When a new bail out of financial markets on a grand scale is attempted, buy stocks in Europe and the U.S. for a trade…in our opinion, they may rise for a few months.
 
2. When the U.S. dollar is devalued in one large increment, buy U.S. stocks …they will fly.
 

 
Europe’s Crisis Is Accelerating
 
Europe is the catalyst for the latest installment of angst world wide.  We agree with most of the reasons stated in the following article by Gillian Tett, “Eurozone crisis follows America’s playbook of 2008” in the Friday August 5th edition of the Financial Times.

A few Weeks ago, I wrote a column warning investors against taking a long summer holiday this year.
 
Sadly, I was right, no sooner did the markets breathe a sigh of relief over the resolution of the US debt ceiling dramas, they started gyrating with alarm over the eurozone.  Call it, if you like, the curse of August: just as in 2007 and 2008 (or 1997 and 1998) the fact that senior leaders are absent and markets are thin is threatening to unleash a new wave of volatility.
 
To read full article please click the following link:
Full Article
 

“To see things in the seed, that is genius”
-Lao Tzu
 

The seed of the current crisis has been growing and ripening for decades.  Let us pay tribute to those wise people like Jim Sinclair and Harry Schultz who identified the seeds of this current turmoil long ago.  Harry and Jim gave me deeper insight into the current issues in 1971 when we met.  I shared an interest in global economics and finance and had realized that gold was the key to a correct monetary system for the world.  Gold tempered the power of the politicians.  Jim and Harry gave me more insight and wonderful global contacts in the investment world.  Jim took me under his wing and shared his extensive wisdom with me.
 
I was honored to speak with Jim, at the first Gold Experts Forum in Princeton, New Jersey 1971 organized by the International Harry Schultz letter.
 
From that time to the present, Jim went on to found two very successful gold mining companies and Harry continued his newsletter and was acknowledged as the Dean of global investing. In the last 3 decades, Jim has gone on to form two highly successful gold mining companies and to become an extremely eloquent and brilliant foreteller of global financial and economic trends.  He identified the derivatives crisis and other banking and financial related crises well before the savviest professional investors.
 
Harry’s advice has been astute and timely; he is a courageous international man and a life long student of markets and precious metals from his early days in China right after World War II.
 
At Guild Investment Management, Inc when gold peaked in early 1980, we sold our gold at very close to the top prices.  We repurchased gold in 2002 and have not let go.  See our recommendations below.
 
The story is not over, the big move up in gold lies ahead of us and we will see a continuation from here.  Here at Guild Investment Management, Inc we believe that we have proved that we understand not only when to buy gold but also when to sell it. We do not see today as the time to sell. Hold on for the ride.
 
We thank you for your continued support. To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email guild@guildinvestment.com.

 

Date

Date

Appreciation/Depreciation

Investment

Recommended

Closed

in U.S. Dollars


Commodity Market Recommendations


 

 

 

Gold

6/25/2002

Open

+430.5


Corn


4/20/2011

 

8/3/2011

 

-6.3%

Oil

2/11/2009

8/3/2011

+157.1% 

Corn

12/31/2008

3/3/2011

+81.0%

Soybeans

12/31/2008

3/3/2011

+44.1%

Wheat

12/31/2008 

3/3/2011 

+35.0% 


Currency
Recommendations


 


Long




Brazilian Real

9/13/2010

Open

+5.2% 

Long




Canadian Dollar

9/13/2010

Open

 +3.5%

Long




Chinese Yuan

9/13/2010

Open

+4.9% 

Long




Swiss Franc

9/13/2010

Open

+33.6% 


Long




Singapore Dollar

9/13/2010

8/3/2011

+10.9% 

Long




Australian Dollar

9/13/2010

06/29/2011

+14.1% 

Long




Thai Baht

9/13/2010

6/22/2011

+6.5%

Short




Japanese Yen

4/6/2011

7/27/2011

-9.7%

Short




Japanese Yen

9/14/2010

10/20/2010

-3.3%

 

Equity Market
Recommendations





India


4/6/2011

 

Open

 

 -14.9%


Malaysia


6/29/2011

 

 8/3/2011

 

 +.08%

U.S.

6/29/2011

8/3/2011

-4.6% 

Japan

2/15/2011

8/3/2011

 -9.5%

Australia

2/15/2011

6/22/2011

-0.9%

Canada

3/24/2011

6/22/2011

-7.1%

Colombia

9/13/2010

6/22/2011

+2.6%

Malaysia

4/6/2011

6/22/2011

+0.8%

Canada

12/16/2010

3/11/2011

+7.9%

U.S.

9/9/2010

3/11/2011

+18.1%

South Korea

1/6/2011

3/3/2011

-2.9%

Colombia

9/13/2010

2/2/2011

+3.9%

China

9/13/2010

1/27/2011

+5.0%

India

9/13/2010

1/6/2011

+7.9%

Chile

9/13/2010

12/16/2010

+8.9%

Indonesia

9/13/2010

12/16/2010

+9.5%

Malaysia

9/13/2010

12/16/2010

+1.3%

Peru

9/13/2010

12/16/2010

+32.2%

Singapore

9/13/2010

12/16/2010

+4.8%

Thailand

9/13/2010

12/16/2010

+11.9%





Bond Market
Recommendations








 30 YR Long Term




U.S. Treasury Bond  

8/27/2010

10/20/2010

0.0%